United States: New Changes To The United States Foreign Investment Laws: What Foreign Investors Need To Know

On August 13, 2018, President Trump signed the John S. McCain
National Defense Authorization Act for Fiscal Year 2019 (NDAA) into
law. The NDAA contains the Foreign Investment Risk Review
Modernization Act (FIRRMA), which makes significant changes to the
Committee on Foreign Investment in the United States (CFIUS). This
article briefly summarizes a number of changes to the current CFIUS
process that will significantly impact foreign companies seeking to
invest in U.S.-based businesses. The changes introduced by FIRRMA
are the most significant changes made to CFIUS in over a
decade.

As discussed in
previous articles published by Torres Law,1 CFIUS is an
interagency body with authority to assess the national security
implications of investment transactions that could result in
control of U.S. businesses by foreign persons. CFIUS is comprised
of nine members from the federal executive branch, two ex officio
members, and other members as appointed by the president.
Chaired by the U.S. Department of the Treasury, CFIUS reviews for
national security concerns transactions in which a foreign entity
acquires control of a U.S. business. CFIUS reviews have typically
focused on deals involving national security such as defense,
transportation infrastructure, telecommunications, technology, and
most recently financial services and personally identifiable
information.

FIRRMA impacts the CFIUS process in several ways and expands
CFIUS applicability to the following types of "Covered
Transactions":

Real estate
transactions. Real estate transactions where a foreign
person leases or purchases real estate in close proximity to U.S.
military or other sensitive U.S. government locations, or where the
property is located in or will function as part of an air or
maritime port and if such property could reasonably facilitate the
collection of intelligence, expose the property to the risk of
foreign surveillance, or otherwise expose national security
activities at such U.S. government site.

Non-controlling
investments involving "critical infrastructure,"
"critical technology," or "sensitive personal
data" of U.S. persons. Transactions where foreign
persons invest in critical technology and critical infrastructure
will be subject to CFIUS jurisdiction if the foreign person could
gain access to material nonpublic technical information possessed
by the U.S. business; if the investment could provide the foreign
person the right to observe or join the board or nominate board
members; or allow the foreign person to be involved in any
substantive decision making related to sensitive personal data of
U.S. persons, critical technologies, or critical
infrastructure.

Change in Rights.
Changes to a foreign person's rights if they result in control
of a U.S. business or critical technology and critical
infrastructure companies (or any of the other types of investments
described above).

Evasion. Any
transaction designed or intended to evade or circumvent CFIUS
jurisdiction.

Other important changes include modifications to the CFIUS
review and investigation process, including the modification of
CFIUS timelines to expedite certain reviews while strategically
targeting others for more in-depth review (e.g., Chinese
transactions); new filing fees up to $300,000 per transaction and
potential "fast track" fees to presumably expedite
filings for parties who pay an additional fee; additional resources
for CFIUS staffing; more authority for CFIUS to investigate
transactions for which it was not notified; and the introduction of
"light" CFIUS filings,2 which will streamline the
CFIUS notification process and aim to reduce the resources and
costs involved in conducting the filing. Further, certain
transactions will now be subject to a mandatory CFIUS filing
(i.e., transactions where a foreign government obtains a
substantial interest (more than 10%) in critical infrastructure or
critical technology or a company that maintains sensitive data
about U.S. persons). Notably, CFIUS is now instructed to review the
foreign person's history of compliance with U.S. laws and also
evaluate whether the proposed transaction could create
cybersecurity risks for the United States. FIRRMA will also require
CFIUS to establish formal plans to monitor mitigation plans imposed
on approved transactions and is now empowered to impose penalties
if the parties fail to comply with mitigation plan conditions
imposed by the CFIUS clearance process.

***

FIRRMA will apply to all pending and future transactions on or
after August 13, 2018. Although some of the FIRRMA provisions will
become effective immediately, others will not go into effect until
the implementing regulations are rolled out over the next 18
months. The public will have an opportunity to comment on proposed
rulemakings, so it is important to monitor for any new
developments.

Torres Law will continue to monitor the CFIUS process and any
additional changes over the next 18 months as additional FIRRMA
provisions come into effect. If you have any questions regarding
the potential impact of FIRRMA to your business, or need assistance
with advance planning please do not hesitate to contact us.

On November 29, 2018, the Australian Government passed the Modern Slavery Act 2018 (the "Act"), which requires all companies operating in Australia and meeting a threshold of AU$100 million in total annual global revenue to report annually on their efforts to address modern slavery in their operations and supply chains.

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